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Medical Necessity: A Clinician’s Perspective

56504284By Glenn Krauss

The concept of medical necessity is all too familiar to most physicians in their daily practice of medicine, particularly in the routine of patient diagnostic workup and clinical management. Consider the clinical scenario of ordering a laboratory test or radiologic test instrumental to providing guidance in coming to a clinical conclusion of definitive diagnosis, only to receive pushback from the hospital or radiology center regarding medical necessity. The primary issue is the diagnosis or symptom provided as part of the physician order does not meet medical necessity for the given test when compared to the Medicare Local Coverage Determination (LCD) or National Coverage Determination (NCD).  Under the provisions of LCDs and/or NCDs, the Medicare Administrative Contractor or Medicare determines the specific diagnoses, clinical indications and frequency and limitations of coverage.

Medical Necessity Defined

Medicare defines medical necessity through Title XVIII of the Social Security Act, section 1862 (a) (1) (a) as “Not withstanding any other provisions of this title, no payment may be made under Part A or Part B for any expenses incurred for items or services that are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”

From a clinician’s perspective this definition of medical necessity primarily applies to hospitals and other ancillary service providers, given the fact the majority of diagnostic tests and treatments must be ordered by physicians, yet are performed and billed to third party payers by other than the physician. Reference is made to the General Accountability Office Report entitled Focus on Physician Practice Patterns Can Lead to Greater Program Efficiency, issued in April 2007, where it was noted that physicians play a central role in the generation of health care expenditures in total, pointing out that their services are estimated to account for 20% of total health care expenditures, whereas their influence is estimated to account for up to 90 percent of this spending. (http://www.gao.gov/new.items/d07307.pdf). Given this fact, one can easily understand and relate to the physician’s outlook of medical necessity “being a hospital thing only.” Nothing though can be further from the truth.

Evaluation and Management Services: The Integral Role of Medical Necessity

Aside from physician interventional services or procedures such as surgeries, the likes of heart catheterizations or central line placements, the fundamental basis of physician reimbursement for patient face-to-face clinical management encounters is documentation, coding and billing of Evaluation and Management (E & M) codes maintained by the American Medical Association and used by all third party payers including Medicare.

There exists two sets of E & M guidelines, the 1995 and 1997 guidelines and physicians and nonphysician practitioners are free to use either of the guidelines, whichever is more advantageous from a reimbursement standpoint. Each set of guidelines provides for specific documentation requirements in order to achieve and compliantly code and bill for given level of E & M service. The focus of third party payer reviews and audits of physcian E & M assignment has traditionally been on determining whether the level and degree of clinical documentation found in the patient record met the requirements of the coded and billed E & M assignment.

Individual requirements for each level of E & M are beyond the scope of this article; however, the three key components of an E & M code are History, Physical Exam, and Medical Decision Making. While medical necessity has always been an integral part of accurate and compliant E & M assignment, there is definitely a heightened focus and application of principles of medical necessity by third party payers in their quest to insure proper payment for beneficiary services provided. While medical necessity can be thought of as a subjective term, Medicare consistently refers back to section 1862 (a) (1) (a) as cited above and has made it perfectly clear that the “medically reasonable and necessary” requirement applies to all services. Section 30.6.1, Chapter 12 of the Medicare Claims Processing Manual contains the following discussion of medical necessity (http://www.cms.gov/manuals/downloads/clm104c12.pdf):

  • Medical necessity of a service is the overarching criterion for payment in addition to the individual requirements of a CPT code. It would not be medically necessary or appropriate to bill a higher level of evaluation and management service when a lower level of service is warranted. The volume of documentation should not be the primary influence upon which a specific level of service is billed. Documentation should support the level of service reported. The service should be documented during, or as soon as practicable after it is provided in order to maintain an accurate medical record.

Medical necessity under Medicare provisions is generally expressed in two ways, frequency of services and intensity of service (CPT level.)  Medicare’s determination of medical necessity is separate from its determination that the E & M service was rendered as billed (i.e., that the level of E & M service billed was actually documented to have been provided). This very concept of medical necessity is somewhat challenging for physicians to appreciate and understand in light of the difficulty in properly applying the more tangible and hard fast 1995 and 1997 E & M guidelines.  The physician’s documentation of E & M services reported to Medicare must demonstrate that the frequency of the E/M service and the intensity of the service were appropriate considering the nature of the patient’s complaint and the patient’s condition.

While the physician’s documentation may support the level of E & M billed, the specificity, accuracy and detailedness of the clinical documentation essential to establishing and demonstrating the medical necessity for the volume and intensity of service provided, coded, and billed, is the missing element that leads to adverse determination of medical necessity for the service provided, leading to down coding by Medicare and other third party payers.

Why the Challenge of Meeting Medical Necessity?

There are two primary factors contributing to the physician challenges of meeting the mandated requirement of medical necessity for E & M level assignment. The first factor relates to the inadequacies in understanding of specific E & M documentation requirements associated with each E & M level for place of service delivery, hospital, office, clinic, Emergency Room, etc. . For instance, there are three E & M levels for initial inpatient hospitalization representing and capturing the physician’s clinical judgment, medical decision making and amount of worked performed in managing the patient’s care on the first patient day of hospitalization. Each level requires a specific, increasing degree of documentation of the extent of physician History, Physical Exam, and Medical Decision Making performed.

The second factor relates to poor documentation patterns and habits that fail to adequately capture and report the extent and degree of physician decision making inherent in performing and carrying out the three main elements of an E & M service as outlined above. Clinical documentation lacking clarity and detailedness in recording of the nature of the patient’s presenting problem, history of patient’s presenting illness, extent of review of systems, number of body areas or organ systems examined, and number of clinically pertinent diagnoses the physician must consider in working up, definitely diagnosing and managing the patient’s illness or injury negatively impacts and detracts from effective and unequivocal  establishment of medical necessity for E & M level assignment.

Trailblazer Health, a Medicare Administrative Contractor, in its Evaluation and Management Services Manual updated April 2010 highlights the key attributes Medicare considers when making a medical necessity E & M determination. The attributes include:

  • The number of problems for which the physician’s work of E/M is clearly demonstrated.
  • Physical scope encompassed by the problems (number of physical systems affected by the problems) evaluated and managed.
  • Acuity and/or duration of the problems evaluated and managed and the context among all other services previously rendered for the problems in which the current service falls.
  • Severity of problems (risk for morbidity and/or mortality) evaluated and managed.
  • Complexity of documented comorbidities that have been documented to have clearly influenced physician work.

Shortcuts and deficiencies in clinical documentation cause these attributes to be less than clear and evident in the eyes of outside reviewers. Medicare makes its medical necessity determinations strictly on documentation available at the time of review, applying E & M Service Documentation Guidelines and CPT E & M code definitions. The time tested adage of “If It’s Not Documented, It Did Not Happen” is alive and well in Medicare’s determination of medical necessity.

The Road to Success in Medical Necessity Establishment

Effective techniques and patterns of clinical documentation that adequately depict and capture medical necessity for all physician services ordered and rendered have developed into an integral part of the physician’s business of the practice of medicine, especially with the recent healthcare reform provisions advocating for accountable care organizations, medical homes, and bundled payments. Indisputably, the provisions of medical necessity will play an ever increasing role in the transformation of the current financial reimbursement methodologies from volume based to performance and valued based.

It is incumbent upon the physician to capitalize upon the opportunity to develop a deep understanding and appreciation for the concept of medical necessity, incorporating best practices of clinical documentation that accurately and effectively capture the essence of medical necessity reflective of the amount of work performed, clinical acumen used and medical decision making applied in the diagnosis and treatment of the patient’s illness or injury.  Time is of the essence in getting started.


Glenn Krauss is an independent revenue cycle consultant with a focus upon physician clinical documentation improvement. He can be reached at glennkrauss@earthlink.net or (603) 303-3337.


  1. Mr. Krauss has appropriately focused attention on medical necessity in supporting the level of care in E/M services. He fortunately twice introduces the specific E/M component that assesses medical necessity: “the nature of the presenting problem” (NPP). The importance of considering this E/M contributory factor is underscored in the AMA publication “Practical E/M: Documentation and Coding Solutions for Quality Patient Care”; this volume labels the NPP as a “mandatory fourth factor” that physicians MUST consider in all E/M services that also include the three key components.

    CPT describes NPP as the risk of morbidity, risk of mortality, (and/or) risk of significant loss of function without intervention; i.e., the features that physicians describe as the natural course of the disease if care not provided or changed. Further, AMA’s CPT publication provides illustrative examples of the NPP in its “Appendix C: Clinical Examples.” “Practical E/M” also advises physicians on a fundamental methodology for compliant E/M care, documentation and coding that is also emphasized in the introduction to Appendix C:

    1) Perform and document a comprehensive history at every visit,
    2) The comprehensive history is the key physicians require to establish an effective preliminary differential diagnosis and a probable level of NPP (i.e., medical necessity).
    3) The initial level of NPP correlates with the medically indicated level of care (per CPT) and the Department of Health and Human Services’ own publications confirm that it is appropriate for effective clinical records to provide guidance that ensure physicians perform and document the proper level of physical examination and medical decision making.

    This approach to E/M care follows optimal patient care workflow for physicians, as described in the common reference text that describes meaningful history and physical exam: the “Bates’ Guide to Physical Examination and History Taking.” Fortuitously, careful reading reveals that this standard text, which is familiar to most physicians, is also the obvious origin of the E/M coding system. The E/M system’s descriptions of the three key components are nearly identical to those found in “Bates.” Even more impressively, Bates emphasizes the “Nature of the Patient’s Problem,” which correlates perfectly with CPT’s Nature of the Presenting Problem and with physicians’ and Medicare’s concept of Medical Necessity.

  2. Jeremy Engdahl-Johnson

    Medical homes face a public awareness problem. The solution? Scenarios that work.

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